Question

On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. GigaTech has 100,000 shares currently outstanding. This is the company’s first and only stock investment. On October 31, which is Potter’s year-end, the stock had a fair value of $20,000. Potter should record a:


a. Debit to Unrealized Loss-Income for $4,000.

b. Credit to Unrealized Gain-Income for $4,000.

c. Credit to Investment Revenue for $4,000.

d. Debit to Unrealized Gain-Equity for $4,000.

e. Credit to Fair Value Adjustment-Stock for $4,000.

Answer 1

Answer:

Option (b) is correct.

Explanation:

Unrealized Gain(Income):

= Fair Value of the stock - Book Value of stock

= $20,000 - $16,000

= $4,000

Therefore, the journal entry is as follows:

October 31,

Investment - Available for sale securities A/c Dr. $4,000

                     To Unrealized Gain-Income                          $4,000

(To record the unrealized income)

Answer 2

Answer:

correct option is b. Credit to Unrealized Gain-Income for $4,000.

Explanation:

given data

purchased =  2,000 shares

GigaTech stock = $16,000.

currently outstanding = 100,000

fair value = $20,000

solution

as we know Fair Value of the stock is $20,000  and Book Value of stock is $16,000  so here

Unrealised is Gain Income that is = fair value - Book Value  ............1

Unrealised is Gain Income = $20,000 - $16,000

Unrealised is Gain Income  = $4,000

so correct option is b. Credit to Unrealized Gain-Income for $4,000.